June 13, 2011

Zero-based budgeting

Marc Comtois

Looking at RIPEC's state budget projections, Ted Nesi explains how a "budget on autopilot" is untenable no matter what the entity--towns, cities, states, the country. You can also read "autopilot" to mean "assumptions." Yet, the assumptions built into these budgets--3% raises, increase in program costs, etc.--aren't even enough to cover the rate of growth, which far outpace the ability to tax (or "generate revenue").

Nesi provides a nice pie chart showing that 52% of the growth in the budget since FY2002 is from social services and 17.7% of the growth comes from increasing personnel costs (while the growth in personnel costs--particularly in a good economy--are probably about what we'd expect to see, keep in mind that the state workforce has shrunk). Meanwhile, as we well know, aid to cities in towns--ie, money that towns send to cities, some of which filters back to them--has been reduced by nearly 3%, which isn't a lot in the big picture, but hurts each community acutely.

Given our current straits, perhaps it's time to implement zero-based budgeting instead of the current practice of "last year + (at least) 3%". Start fresh. Look at what we spend our tax dollars on and (re)prioritize: infrastructure, economic development, providing important services at reasonable cost, etc. Now, it takes a lot of work, so perhaps we could do a zero-based budget in the first year of each new governor term and then baseline from there. It's an interesting concept, but the chance of it getting implemented is, well, zero.

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"instead of the current practice of "last year + (at least) 3%". Start fresh."

Exactly! A couple years ago, my town created some new big program and added staff based on stimulus funding. It was some program that sounded like it would live on for years, but only had 1 year of cash from Obama. I wrote to the town and asked where the funding would come from in future years and was told that yes, they'll have to look at the benefit of the program vs. the cost to the town. Want to guess if that program was eliminated? Heh.
That's one of the biggest problems, government grows during the good times and grows slower in the bad times. Everywhere else, you cut in the bad times.

Posted by: Patrick at June 13, 2011 12:38 PM

A little OT

Here's a pseudo link to a George Mason ranking of relative freedom state by state.

aitchteeteepee://mercatus.org/freedom-50-states-2011

Any guess where RI winds up? And, yes, lack of fiscal freedom is a large part.